Aluminium Supply Constraints

Analysts at BofA Securities expect aluminium supply to remain constrained in the medium term.

Factors Affecting Supply

The primary driver of this tight supply is China's self-imposed production cap of 45 million tonnes annually.

Despite being the world’s largest producer, responsible for about 60% of global output, this production ceiling limits China’s capacity to expand. China’s disciplined adherence to this cap suggests that aluminium markets will likely remain in a deficit, keeping supplies tight in the foreseeable future.

Global Supply and Demand Dynamics

The global aluminium market is also hindered by the slow pace of new supply additions. BofA projects global supply additions from 2023 to 2026 to grow modestly, with a CAGR of 2.1%. This sluggish growth, alongside a projected increase in demand exceeding 4% annually, reinforces the likelihood of a persistent supply deficit.

Countries like China are expanding aluminium production capacity abroad, such as in Indonesia, but these projects are unlikely to offset production limits within China itself.

Price Forecasts

Higher aluminium prices are anticipated due to tight supply, with BofA forecasting a potential increase to $3,250 per tonne by 2026. This outlook stems from China’s limited capacity to ramp up domestic production and the slow development of new smelting projects globally.

Western aluminium producers like Alcoa and Norsk Hydro are not expected to invest in new capacity due to high capital costs and environmental considerations, including the shift towards greener technologies.

Market Response

Despite the forecasted price increases, the aluminium market’s response may be slow. New smelting projects remain rare, especially in Western countries, where returns on investment in smelting have been low in recent years. In contrast, the upstream segments of the aluminium value chain, such as bauxite mining and alumina refining, have attracted higher levels of investment, particularly outside China.